Forensic Accounting Practices
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Forensic Accounting in Practice
Fraud is becoming a common practice within many businesses and organizations. In order for law enforcement, lawyers and other businesses to find out more about such discrepancies, they will seek out assistance from a forensic accountant. A forensic accountant is an accountant who uses his or her accounting skills to investigate financial crimes such as fraud, and use fact-finding practices to expose inconsistencies in accounts and reports (Kelchner, 1999-2013). Some may remember the Enron and WorldCom scandals where top level executives were caught with their hands in the “cookie jar”. Thanks to these indiscretions new laws were put in place to provide more government supervision over accounting practices (Ray, 1999-2013).
In the following paragraphs this paper will provide information of the practice of forensic accounting, determine the top five skills a forensic accountant will need to possess, evaluate the need for each skill, the relationship between the skill, and how it applies to business operations. This paper will also provide a description a forensic accountants role in a courtroom environment, as well as analytical view legal responsibility a forensic accountant has while providing service to a business, to include a summary of Enron and WorldCom scandal where forensic accountants supported critical evidence and the importance of their role in these cases.
Although corporate financial scandals have been around for numerous years, it was not until after September 11, 2001, that an array of corporate deceptions as well as numerous other complicated financial conspiracies began to emerge. Even in the wake of a horrific terrorist attack, America found a way to address these conspiracies by creating a job position known as a forensic accountant (FBI, 2012). Forensic accounting brings information technology together with accounting by utilizing computer software to examine financial records, and determine whether or not the information provides proof of fraud, embezzlement or the possibility of additional illegal activities. In most instances, the information collected is used as evidence in cases that have been brought to court (The World of Accounting, n.d.).
Nevertheless, a forensic accountant will use his or her skills to investigate financial conspiracies, but in order to succeed in this field a forensic accountant will need to have exceptional accounting and auditing skills, evidence gathering skills, investigative skills, and a distinct understanding of litigation procedures, and processes. It is necessary for forensic accountants to prepare financial data needed for evidence in a case in a quick and efficient manner. He or she must be able to see outside the numbers, view the total picture, and convey information clearly and effectively in the courtroom (The World of Accounting, n.d.).
Although a forensic accountant will need to have a bachelors degree in accounting and a strong desire to solve crimes, he or she will also benefit by becoming a Certified Public Accountant (CPA), as well as a Certified Fraud Examiner (CFE). Most people in this field already have the niche of paying attention to detail. However, due to the nature of the job, having an investigative mind is an added advantage (Echie, 2008).
For instance, a forensic accountant may become an expert witness in a trial. By utilizing the required accounting, auditing, and investigative skills, a forensic accountant will be able to establish dealings in the finance industry. Forensic accountants will often assist businesses with professional negligence claims by assessing and commenting on the work of other professionals. Unfortunately, some actions related to scandalous activity tend to occur as a result of fraud, and involve an in depth assessment of accounting systems and presentations to determine if the figures are indeed genuine (Forensic CPA Society, 2007).
In addition to regular accounting skills, forensic accounting covers litigation support and investigation. A forensic accountant measures damages endured by groups immersed in financial legalities, and plays a major role in resolving differences to prevent it from making it to a courtroom. However, if the dispute does end up in court, then the forensic accountant will provide testimony as an expert witness, and having the knowledge and expertise of the courtroom is what separates a forensic accountant apart from a regular accountant.
Having investigative skills are another important aspect of being a forensic accountant. An investigation can determine whether illegal activity such as, identity theft, employee theft, insurance fraud, securities fraud or falsification of financial data has transpired. Sometimes a forensic accountant will be asked to determine if there are assets being concealed in a divorce case. Even though fraud auditing and forensic accounting are closely related, fraud auditing is to prevent illegal situation before it happens. A forensic accountant is normally hired after the fact or when there is suspicion of embezzlement, fraud or theft (Forensic CPA Society, 2007).
Forensic accounting played an important role in the Enron and WorldCom scandals in the wake of September 11, 2001 terrorist attacks. The Enron scandal is one of the most noteworthy corporate downfalls in the United States, and because of the nature of the scandal it was clear that reform in accounting and corporate authority, in addition to an in-depth examination of business and corporate ethics was needed. The Sarbanes-Oxley Act was created in 2002, to address governance and omissions correlating to organizational boards and public accounting practices (Forensic Accounting, 2013).
Enron was founded in 1985 by Kenneth Lay when Houston Natural Gas merged with Internorth. Lay, the former chief executive officer (CEO) of House Natural Gas stepped into the role of CEO at Enron and eventually chairman. Apparently, energy markets were altered sometime in 1996, so instead energy prices being available at a fixed rate, rates would now be established by competing with the rates of other energy companies. In this capacity Enron would become more of a middleman instead of a conventional energy supplier, and instead of buying and selling natural gas it would be trading energy contracts. Eventually, this led to other endeavors, like a website for trading commodities, and in turn becomes the largest business site in the world. To continue its growth, however, Enron would have to borrow money to capitalize on new projects, and having debt would make Enron a less desirable commodity in the trading world. In turn, Enron began affiliating with businesss that would keep its debts off the record (Forensic Accounting, 2013).
WorldCom was founded in 1983, by Murray Waldron, and William Rector, businessmen who